1 2 TOXICIDAD POR DOPAMINA EN LA ENFERMEDAD DE HUNTINGTON

Standard & Poor’s (S&P) has been a leading agency since 1860 that provides analytical and research services across a range of publicly issued debt obligations. Independence, objectivity, creditability and disclosure are its core principles. S&P’s credit rating and symbols are divided into issue-specific credit ratings and issuer credit ratings.

S&P’s issue-specific credit ratings express an opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligation or a specific financial program (e.g., bank loan or a debt issue). Such an opinion is based on three main considerations: the chances of obligor payment to meet its financial commitments

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in accordance with obligation terms, the nature of and provisions of the obligation and protection afforded by the obligation in the event of default or bankruptcy. S&P’s issuer credit ratings express an opinion about the obligor’s capacity and willingness to meet specific financial commitments at their due times. The word specific does not refer to any particular financial obligation, given that the nature and provisions of an obligation, its standing in bankruptcy or liquidation, statutory preferences or the legality and enforceability of the obligation are not considered issue-specific credit ratings (Standard and Poor's Ratings Services, 2013).

S&P’s credit analysts study both quantitative and qualitative aspects to determine corporate credit ratings. The overall company rating derives from both the overall, qualitative business- risk rating (i.e., industry characteristics, competitive position and management are the main determinants) and the overall quantitative financial-risk rating (i.e., financial policy, profitability, financial flexibility, CS and cash flow protection are the key factors). The issuance of bank rating is based on evaluation of the bank’s overall financial and business risks employing the so-called bank rating analysis methodology profile. The overall bank rating is derived after an examination of the five business risk factors (i.e., economic risk, industry risk, market position, diversification and management and strategy) and the six financial risk factors (i.e., credit risk, earning, liquidity and funding, market risk, capitalisation and financial flexibility) that affect overall bank performance.

To gather, analyse and process information about current and anticipated events and circumstances, S&P uses two rating scales within two time frames: the long-run (i.e., more than one year) and the short-run (i.e., one year or less). The long-run credit ratings result from an assessment scale that includes two scores: investment score (i.e., the safest level of financial securities with low default rates: AAA, AA, A and BBB) and speculative score (i.e., the riskier securities with relatively high default rates: BB, B, CCC, C, SD and D). It is worth

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mentioning that the S&P rating agency adds a plus (+) or a minus (-) to ratings AA to CCC to indicate the strength and weakness within a rating for every issuer. The short-run ratings are denoted by the symbols A-1+, A-1, A-2, A-3, B and C. The investment score is applicable only to A categories. The remaining categories are considered to be speculative scores. S&P developed the so-called CreditWatch listing to monitor a list of issuers whose ratings may change when an event or deviation from an expected trend occurs or is expected. CreditWatch designation may be positive, meaning improved rating, or negative, meaning that the rating has deteriorated. Finally, S&P unsolicited ratings are based on an analysis of publicly available information sources such as a company’s published annual report (Standard and Poor's Ratings Services, 2012b).

2.7.2 Moody’s

Moody’s is currently a freestanding agency that is highly specialised in credit rating. Moody’s rating depends on a combination of both quantitative and qualitative criteria rather than purely quantifiable and objective criteria. Peer group analysis is an analytical technique used by Moody’s to assess issuers’ access to markets. This technique helps to identify the precise differences in the peer group or industry sector, which in turn enables the accumulation of knowledge and identification of possible discrepancies in the evaluation. As with S&P, Moody’s uses two rating scales within two time frames: the long-run (for specific issue and for issuer) and the short-run. Moody’s long-term issuer ratings reflect opinions about the issuer’s ability to satisfy senior, unsecured financial obligations denominated in foreign or/and domestic currency. The long-run ratings reveal both the default probability of an issuer and the amount of loss that may result from a default. Similar to S&P, Moody’s rating scale includes two scores: (1) the investment score (Aaa, Aa, A and Baa represent the top four categories, with Aaa being the highest score). The highest

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investment score is assigned to well-insured issuers, even if they face severe economic conditions; and (2) a speculative score, which ranges from Ba (moderate threshold between good and bad credits) to C (bottom score reflecting very bad credit with poor investment prospects). It is worth mentioning that Moody's rating agency appends numerical modifiers 1, 2, or 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks at the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of the generic rating category (Moody's Investors Service, 2013).

Moody’s short-run ratings deal with securities that mature in less than one year. In this context, Moody’s classifies issuers as those who may not be able to meet their entire short- term obligations (NP: not prime) and those for whom the possibility of meeting their obligations is high (P: prime). Within P, there are sub classifications (P-1: highest degree of investor protection; P-2: moderate protection; P-3: lowest protection).

Moody’s BFSR was inaugurated in 1995 and is available on a solicited and unsolicited basis for banks from 50 countries. BFSRs are a common way to judge bank safety and soundness, and they correspond to Moody’s opinion on a bank’s internal financial strength (i.e., the probability that a bank will require assistance from third parties such as owners, industry groups or government institutions such as the central bank).

Before assignment of BFSRs, Moody’s analyses five quantitative and qualitative factors: franchise value, risk positioning, regulatory environment, operating environment and financial fundamental . According to Moody’s, franchise value measures the ability of banks to survive in a given geographical market or business niche. This measure includes a bank’s market share and sustainability, geographical diversification, earning stability and diversification and ability to overcome events that can destroy a bank’s franchise value. The

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second factor, risk positioning, defines a bank’s risk behaviour and its risk-management approach. This factor accounts for corporate governance, controls, financial reporting transparency, credit risk concentration and liquidity management. The third and fourth factors (i.e., regulatory and operating environment) are general factors concerned mainly with the environment in which the bank operates. The fifth factor encompasses financial fundamentals such as profitability, liquidity, capital adequacy, efficiency and asset quality.

The rating scale ranges from A banks (exceptional intrinsic financial strength, strong financial fundamentals and attractive stable operating environment) and E banks (weak financial fundamentals, unattractive operating environment and a severe need for periodic outside support). Between these two ends, B, C and D banks exist on the scale. A plus (+) modifier is appended to ratings below the A category and a minus (-) modifier is appended to ratings above the E category to distinguish those banks that fall in intermediate categories. Moody’s also has developed rating outlooks and a rating review/watch list as periodic judgements of good (poor) performers in terms of the above-mentioned scales( Moody's Investors Service, 2013) .

2.7.3 Fitch

Fitch is a leading global rating agency and is regarded by some people as a main competitor of the US duopoly of Standard & Poor’s and Moody’s. Fitch supplies the word’s credit market with independent and prospective credit opinions, research and data (e.g., Bankscope database). Leadership, responsiveness, transparency and perspective are the core principles of Fitch’s rating system. Fitch has been mainly developed by strategic mergers and acquisitions, which may explain the rapid growth of Fitch during the past decades.

Fitch ratings activities are spread globally to cover sovereign, financial, bank, insurance, municipal and other public finance entities and the securities or other obligations they issue.

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A merger between Fitch and Thomson Bank Watch in December 2000 strengthened Fitch’s position in the business of bank ratings. With more than 1,000 international bank ratings, Fitch is considered to be the leading bank credit rating agency in terms of coverage with its main concentration in the emerging markets (e.g., Asia, Africa and Middle East, Central and Eastern Europe and Latin America). Fitch’s market share for bank ratings in emerging markets is almost twice that of S&P’s and Moody’s.

Fitch ratings are classified into international and national. Simply, international credit ratings access the capacity to meet foreign currency or local currency commitments; whereas national credit ratings are assessments of credit quality relative to the rating of the best credit risk in a country. In line with this, Fitch covers four major kinds of credit rating: long-term credit rating, short-term credit rating, FBR, and bank support rating. As with the other rating agencies, long-term credit rating and short-term credit rating have the same meanings, which are interpreted as an opinion about the ability of an entity to meet financial obligations (interest, preferred dividends or repayment of principle) on a timely basis.32 Consequently, Fitch’s long-term credit rating scale includes two scores. In line with S&P’s ratings, the first is the investment score (AAA, AA, A and BBB represent the top four categories, with AAA being the highest score). The second is speculative score (i.e., the riskier securities with relatively high default rates; BB, B, CCC, CC, C, RD and D). To denote relative status within major rating categories, the plus (+) or minus (-) modifiers are attached to ratings from AA to B. The short-term credit rating scores are denoted by the symbols F-1+, F-1, F-2, F-3, B and C. The investment score is applicable only to F categories. The remaining categories are considered to be speculative scores.

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FBRs, recently known as bank viability ratings, are used mainly to assess banks’ quality and strength without any external support. The FBR represents Fitch’s opinion about the possibility that a bank may face significant difficulties that would necessitate immediate support. The main factors that determine these ratings include profitability and balance sheet integrity (including capitalisation), franchise, management, operating environment, size (in terms of equity capital), diversification (in terms of involvement in a variety of activities in different economic and geographic sectors) and prospects. FBR scores range from A denoting for a very strong bank to E, which indicates a bank with very serious problems that require external support. Between these two ends, A/B, B, B/C, C, C/D, D and D/E ratings exist on the scale (Fitch Ratings, 2013).

Bank support ratings comprise five rating categories and represent Fitch’s opinion about the potential tendency of a supporter (either the governmental authorities or institutional owners) to support a bank in distress periods. Assignment of such ratings is based on four broad categories of criteria: guarantees and commitments, percentage control, nature of the owner and importance of the bank to the owning institution. Support rating scores vary from 1, which denotes a high probability of external support. This is backed by two main reasons: (1) supporter’s high propensity to support the bank and (2) the supporter is itself very highly rated. The other extreme of scoring is represented by 5, for which the expected external support for the bank is in great doubt. Finally, it is worth mentioning that Fitch developed the

61 2.7.4 Capital Intelligence (CI)

CI is one of the most specialised rating agencies33 in the Middle East region. CI has provided ratings services since 1985. Strong professionalism in providing valuable information to banks' creditors about banks’ financial strength distinguishes CI from other RAs. Also, CI enjoys a good reputation in the qualitative and quantitative analysis of banks (i.e., mainly profitability and capital adequacy). The independence, objectivity and analytical consistency have enabled CI to expand the scope of its rating services to include corporate credit, bonds and other financial obligations. The rating process for CI starts with an examination of the traits of a country’s banking system by evaluating the regulatory and supervisory regime as well as the accounting and auditing practices of the relevant market. In this regard, it should be highlighted that CI uses a comprehensive list of evaluation ratios and factors (country-, market-, institutional- and bank-level) (Capital Intelligence, 2012).

CI ratings are classified as international or national. According to Capital Intelligence (2011), international credit ratings are classified into issuer credit ratings (which measure the creditworthiness of an entity, sovereigns, financial institutions and corporate entities, and its ability to meet its financial obligation in a timely manner) and issue-specific credit ratings (an opinion about the willingness of an a financial institution or a corporation to satisfy its financial obligations with respect to a specific bond or other debt instrument). CI uses two rating scales within two (long-term and short-term) time frames. The issuer credit ratings are categorised into foreign and local currency ratings, which assess the willingness and ability of an entity to satisfy financial obligations denominated in foreign (local) currency, controlling for economic, financial, country risks and external support. In the case of foreign currency

33 _{CI’s geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern} Europe, South Africa, South East Asia, the Far East and North and South Africa.

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credit ratings, restrictions imposed by governments on foreign exchange are taken into account.

CI has developed two additional ratings for financial institutions: (1) an FSR, which assesses the bank’s intrinsic financial strength, soundness and risk profile, controlling for many factors related to the operating environment; and (2) support ratings, which emphasise the probability that banks would receive support from third parties in case of difficulties. The rating scale applied to the FSR is the same as for foreign and local currency ratings. The rating scale applied to support ratings ranges from 1 (a bank that has a high probability of receiving financial assistance in the event of difficulties because of the extremely strong ability and willingness of potential supports to provide sufficient and timely support) to 5 (the likelihood of support is low). Tables 2.2 and 2.3 summarise the major rating categories for S&P, Moody's, Fitch and CI.

Table 2.2: Long-term ratings/scales for the four rating agencies

S&P Moody’s Fitch CI

Investment Score AAA AA A BBB Aaa Aa A Baa AAA AA A BBB AAA AA A BBB Speculative Score BB B CCC CC C Ba B Caa Ca BB B CCC CC C BB B C Default SD, D C RD, D RS,SD,D

Source: Developed by the researcher

Table 2.2 summarises and compares the long-term ratings/scales issued by the four rating agencies. AAA is the highest credit rating assigned by S&P. This rating refers to the highest level of financial creditworthiness and strong commitments. The AA rating is slightly below the AAA rating. The A rating refers to strong but unsustainable financial creditworthiness.

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The position of the obligor in this case may be easily affected by adverse shocks and significant changes in economic conditions. The obligors in higher rated categories may have more capacity to adjust their positions in response to adverse shocks. BBB refers to a reasonable capacity to meet financial commitments.

BB refers to a low level of creditworthiness associated with different sources of uncertainties. B is below BB and refers to weak financial commitments. CCC comes after B and denotes a high degree of vulnerability and fragile financial position. CC means that the obligor is in financial stress with the possibility of bankruptcy. A C rating points to bankruptcy, although debt service payments continue. The SD (selective default) rating is assigned when S&P considers that the issuer has selectively defaulted on a specific issuer or class of obligations when they are due. D is among the worst ratings and is assigned when the obligor fails to meet all or substantially all of its obligations. Ratings ranging from AA to CCC are adapted by the addition of a plus or minus sign to show relative standing within the major categories (Standard and Poor's Ratings Services, 2013).

Moody’s Aaa rating refers to entities with strong positions that may enable them to offer exceptional financial security. Aa is below Aaa and implies a possibility of long-run risk. An A rating refers to good financial security, though the possibility of long-run risk is greater than for those rated as Aa. Baa lags behind A such that the issuers may offer adequate financial security with weak or unreliable protective elements.

Ba refers to so-called risky issuers with weak commitments. Below Ba, the B rating refers to riskier issuers, poor financial security and questionable credibility. Generally speaking, the Caa rating is designed to refer to issuers who have strong incentives to evade/default on their obligations. Ca refers to issuers with on-going default on their obligations. The element of trust could be missing from Ca rated issuers. C is the lowest-rating and is used for issuers

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who are characterised by long-run default and very weak possibilities of recovery. Ratings ranging from Aa to Caa are adapted by the addition of the modifiers 1, 2 and 3 to show relative standing within the major categories (Moody's Investors Service, 2013).

Fitch’s AAA rating indicates the highest credit quality with the lowest risk. This is usually assigned to entities with extended strong financial positions and credibility. AA is slightly below AAA. Although an A rating represents high credit quality, it may refer to a higher degree of risk and vulnerability than AAA and AA ratings. The B class of ratings indicates an increased degree of expected risk. Below the BBB and BB ratings, a B rating refers to